What is an Angel Investor?
Also known as seed investor, angel and private investor, an angel investor is typically a high net worth individual who provides financial backing to musicians. Although unlike a Venture Capitalist, he is not solely motivated by profit but by the musician’s drive to succeed, persistence and by the thought of helping him succeed.
It was William Wetzel, founder of Center for Venture Research of the University of New Hampshire who first used the term “Angel Investor” when he completed a study on how entrepreneurs gathered capital.
But the term “Angel” was once referred to a rich individual who provided financial support to Broadway theaters for a production to push through.
Who qualifies as Angel Investor?
An individual does not need to be an accredited investor many angel investors are in fact, accredited investors. For someone to become accredited, he has to meet the following:
- Has made at least $200,000/ year or $300,000 for a couple for the past 2 years and should be making the same amount again
- Has a net worth of at least $1 million
How does it work?
- The Angel provides the fund that you both agreed and it could be any amount.
- The Angel gets a share of your business in return.
- You won’t be obliged to pay the Angel if your business fails but if it turns out to be successful, that means he continues to get his share.
Pros
They are risk takers
An Angel Investor is usually an established businessman himself and can sense a good idea and a good deal. He understands the risk that he’s getting into but won’t mind putting in an investment believing the potential of a musician to become big someday.
The money that they invest is not considered a loan
Unlike bank loans or any type of loans which you will be expected to pay off the money that you owe including the interest, the Angel Investor has a different framework. He will provide the money that you need to kick start your career and expect to have a share of your success once that happens. If your career falls flat however, he will not expect you to pay the money back.
They help expand your network
The wider the network, the bigger chance for you to get big. The goal is for more people to know you because that would mean more opportunities. And this is one of the benefits that you can get from these investors. Most of them are established people and their goal is to get you big so chances are, you will gain access to their network too.
Cons
Limited Future Profits
Choosing to connect with angel investors may not mean that you will be fully obligated to pay off any investment from them in case you’ll not make it. However, it means giving up a share of your profits in exchange for the money that you can have today.
Losing 100% control on your career
Paying for something means you get to have a say or at least have control on what you are paying for. Same goes with these investors. Most of them want to play an active role in making decisions that will benefit the business.
Most just do one time investment only
Knowing that the investment is considered high risk, expect that most of them will only invest once. They won’t stick forever. Besides, the goal is to help kick start your career, right?